To Combat Widespread Job Loss, Stay Local & Look to Import Replacement

Amid the grim reality of COVID-19, one of the rare feel-good storylines has been a local business that changes its manufacturing setup in an immediate response to the pandemic. A craft gin distillery in Vermont starts producing hand sanitizer for the local food bank and first responders; a veteran-owned t-shirt manufacturer in Georgia switches to making face masks; and so on.

As gratifying as it may be to see entrepreneurs stepping up to the plate to meet the needs of the community during a crisis, these types of one-off pivots are not a long-term strategy. As the owner of the Georgia business told FOX News, “I want to return to making T-shirts. I do not want to be in the mask business.”

The core problem is that in general, the U.S. does not produce its own goods locally for local populations. Face masks are just one product getting all the attention now — and our mask shortage has undoubtedly accelerated the spread of the pandemic, as pointed out in the New York Times. While the Times quotes one medical equipment executive who says that 80 percent of the world’s supply of medical face masks are manufactured in China, this is not a “the U.S. gets everything from China” issue. The U.S. does, in fact, continue to manufacture everything from toilet paper to automobiles. It’s just that in such a geographically huge country, with variable climates, growing seasons and resources, not all products are manufactured close to where people need to use them. And so cities and regions import goods, from coast to coast. If you’re in Michigan and you want tomatoes in February, you’ll likely buy them from a grocery store that imported them from California or Arizona.

And that creates all the costs — economic and environmental — of producing, growing and transporting, across thousands of miles, everything from vegetables to medical equipment. Money paid for the products and producers exits the local community in the millions — sometimes billions — of dollars. And the carbon footprint alone of a single truck carrying 2,000 pounds of cargo 1,000 miles is a whopping 3.24 metric tons of CO2. The cost of importing everything we need, even domestically, quickly adds up.

“I think what we’re seeing, especially now, is the need to adapt and look at our existing resources,” says Rachel Moriarty, Director of Operations at The Schumacher Center, a “think and do tank” that advocates for locally based, just and sustainable economies, and creates models that can be implemented elsewhere. “[Right now,] there’s a run on toilet paper everywhere. Is there an opportunity to think proactively, prior to something catastrophic, to think about needs in a new way? Like [starting] local toilet paper companies?”

“We are so dependent on outside forces, and we are exporting [our] money to them,” says Moriarty. “‘What if we produced locally, kept money locally, so retail could keep local? … [Then] everybody starts to understand it’s not us versus them, it’s helping our neighbors adapt to needs.”

Against this backdrop, the import replacement movement is thinking about re-localization: how to bring back the goods and services communities need, while building up and keeping wealth within those communities.

The concept of import replacement is a city-specific version of the larger economic notion of import substitution. Import replacement was originally posited by activist Jane Jacobs in her 1985 work “Cities and the Wealth of Nations.” Susan Witt, executive director of the Schumacher Center for a New Economics, explains in an essay titled “The Grace of Import Replacement:” “Jacobs believed that the best way to achieve such sustainable economies is to examine what is now imported into a region and develop the conditions to produce those goods from local resources with local labor.” Re-localization keeps dollars in the community, with local businesses that are small and accountable and responsible to their employees as well as the neighborhoods they serve.

Is import replacement, then, the solution to scarcity, job loss and economic downturn, not only during a global crisis such as COVID-19, but in general? At a time of catastrophic unemployment, can re-localizing the means of production create the products and jobs we need and generate local economic growth?

In Cleveland, Evergreen Cooperatives has brought home multiple businesses and millions of dollars through enterprises including Evergreen Cooperative Laundry and Green City Growers. In the Pioneer Valley of Western Massachusetts, Wellspring Cooperative meets local food needs through their Wellspring Harvest Greenhouse. And in Albuquerque, New Mexico, the city government has demanded that their own departments purchase as much as they can locally. In each of these instances, places, people and local governments are figuring out how to bring back the local businesses that support the community, keeping the wealth at home and lifting up entire neighborhoods that might otherwise have been sacrificed at the altar of multinational capitalism.

WORKER-OWNERS SET THE STANDARD IN CLEVELAND

“The example we reference regularly is of the Evergreen Cooperatives in Cleveland. A project of the Democracy Collaborative, the Evergreen coops feature a solar panel factory, greenhouse, and a laundry that services local healthcare institutions,” says Moriarty. Evergreen’s Fund for Employee Ownership also helps convert small businesses into worker-owned cooperatives, a growing trend in the “silver tsunami” movement of retiring baby boomers whose children do not want to take over the family small business.

Founded 20 years ago, Democracy Collaborative has been thinking about how to build a national, truly democratic economy where ownership is broadly held, says Ted Howard, its co-founder and director. The current economy common in the United States is extractive, he says: “highly productive, it keeps producing but not creating substantial wealth. It’s extracting and concentrating in fewer and fewer hands.”

So, they developed an alternative economic theory of community wealth building, part of which has manifested in building worker cooperatives that serve as import replacement and re-localization of industries, in collaboration with deeply rooted anchor institutions, such as hospitals. Institutions that are “not going to pick up and go to China,” Howard says.

The goal is to leverage the power of these anchor institutions as a reliable, built-in market to create community wealth and local opportunity. Anchor institutions, Howard says, make up $1.2 trillion dollars, or 9 percent of the US GDP. That’s a substantial sum to keep localized.

What’s more, Evergreen’s worker cooperatives focus their hiring on the unemployed and formerly incarcerated returning citizens, and they prioritize infrastructure support such as public transportation access. The shift to re-localization and import replacement is threefold, encompassing local hiring, local investment, and cultivating a local supply chain. The business models of these worker cooperative companies are specifically designed to supply local institutions with what they need.

John McMicken, CEO Of Evergreen Cooperative Corporation, notes it was University Hospitals, Case Western University and Cleveland Clinic coming together to start Evergreen, in their quest to fulfill their needs locally. They hired the Democracy Collaborative to research the hospitals and the university to determine how much money they were spending annually on goods and services outside Ohio, and what those businesses were. The high-level conclusion, says McMicken, was that $2 billion was leaving the state for needed goods and services. The question became, what businesses could they make viable locally, to bring that $2 billion a year home, turning it into local wealth building.

The Evergreen Cooperative Laundry was their first project, founded in 2009 with the Cleveland Clinic as an anchor institution. It employs 150 people, many formerly incarcerated, with profit sharing and good benefits, and it does all the laundry for the hospital — 20 million pounds of sheets and towels annually. Before Cleveland Clinic made their shift to working locally, the laundry contract was held by Sodexo, a multinational with corporate headquarters in France.

Evergreen Cooperative Laundry also sources locally as many products as it can, including its laundry chemicals, to keep money in the community. And the environmental impact is significant as well. Before going local, Cleveland Clinic was trucking their laundry to Pennsylvania, 150 to 200 miles away. Keeping the laundry in Cleveland reduces the carbon footprint on the transportation side, with the added benefit of reducing fuel costs as well; each of the two laundry facilities is not more than three or four miles from the hospital.

Evergreen Corporation also started Green City Growers in 2013, a 3.5 acre, 50 employee, hydroponic greenhouse, growing 3 million heads of leafy greens and 300,000 pounds of basil annually for local grocers, community residents and restaurants. From downtown Cleveland, Green City Growers serves an area in a 25- to 50-mile radius around the city. Not only does this cultivate local resilience, it again drastically lowers the carbon it would take to import that many greens thousands of miles from California, Arizona or Mexico.

It also requires less water. In California, says McMicken, a single head of lettuce requires 40 gallons of water to grow. In the Cleveland greenhouse, a similar head of lettuce requires one gallon to grow. “It speaks to sustainability,” he says, “and cost.”

With a business structure similar to the laundry, it took a $16-million construction project to build the indoor farm to meet all the needs of local anchors, in order to grow the volume consistently year-round at the levels of food safety that the anchor institutions require. Today, they sell about $3 million a year of lettuce and herbs.

Howard says that in the wake of the COVID-19 epidemic, “we’re seeing a massive system-wide collapse of our economy.” Keeping your supplies local, he says, can help continue to get people what they need.

“It’s the multiplier effect,” he says. “If you shop with me, the money stays here and keeps circulating. It adds dynamism to the local economy.”

Revenue has become fairly significant for Evergreen Cooperative Laundry, says McMicken — $10 million a year, kept within the Cleveland community, with 12 to 15 percent in net income distributed to employees. The laundry has 150 employees at two physical locations, 85 to 90 of whom are equity holding employee-owners; the rest are in some stage of eligibility. Profit distributions to employee-owners vary a bit year to year, based on each employee-owner’s contract.

“Starting with place-based strategy, you’ve got the physical revitalization of the most distressed neighborhoods in the city,” says McMicken, noting that the two laundry buildings have become anchor institutions themselves in formerly distressed locations; their presence brings in property tax and increases local neighborhood value.

“It’s an example of how an employee-owned business model can be very successful for a variety of stakeholders,” says McMicken. “You’ve got large hospital systems able to transact, that gives them the option to spend money locally, [and] meet diversity and inclusion goals with companies that are minority-owned.”

As an employee-owned cooperative, Evergreen also has a number of “wrap-around benefits,” says McMicken. “We have a robust home-buying program, to purchase homes and [for] stabilization in the neighborhood,” so employees have “less jumping from landlord to landlord.”

FILLING THE FOOD GAPS IN SPRINGFIELD, AND DEMAND STAYS HIGH FOR LOCAL LETTUCE

“Consumers need to have ownership over their local economies,” says Moriarty. “With import replacement, we see it as consumers and business owners coming together to identify gaps, and coming together to fill them.”

“It’s a fact we can be producing everything locally. If costs go up, that’s fine by me,” says Emily Kawano, co-director of the Wellspring Cooperative, a non-profit network of worker-owned businesses that strives to create good jobs and wealth-building opportunities in Springfield, Massachusetts. Built on the Evergreen model, in partnership with anchor institutions, Wellspring identifies what those anchors are purchasing from outside the region, that they might be able to create cooperative businesses around.

Wellspring started talking about these ideas in late 2010, and then for several years, laid the groundwork to start businesses that would supply what anchor institutions purchase. Their first cooperative was a furniture upholstery business in 2013. Then came a women-owned window restoration company and a hydroponic greenhouse for lettuce. They just brought on board an eco-friendly house cleaning company that is converting to a cooperative.

Wellspring’s current anchor partners include Bay State Health, University of Massachusetts, and Mercy Medical.

“We’re small and mighty,” says Do-Han Allen, General Manager at Wellspring Harvest Greenhouse, the largest urban commercial greenhouse in the Commonwealth, which serves those three anchors and more.

The greenhouse opened in May 2018, and its primary crop is hydroponic lettuce. Wellspring Harvest grows six varieties, free of pesticides, including red and green butter lettuce, green crisp and romaine. The greenhouse’s footprint is just one-quarter acre, but the business distributes to residents and to commercial retail. In addition to the hospitals and UMass, they supply 15 Big Y grocery stores in the Pioneer Valley, as well as more than 20 Whole Foods Markets between Massachusetts and Rhode Island, along with the local River Valley Market co-op. They also serve other local college and university customers including Mount Holyoke and Springfield College.

All these institutions have a stated mission to buy local, and they’ve “all stepped up,” says Allen. “All the money we make stays local. We’ve had our struggles, carving [out] our place in the marketplace. It’s an ongoing challenge to position ourselves in the produce and lettuce market. It’s very competitive. Our strength is we have a smart consumer market share that values local produce and local buying. That’s a benefit to us. A lot of our market understands we are worker-owned, that we provide meaningful jobs and address inequities in food access.”

The coop also donates to the local food pantry; last year it gave 1,000 pounds of lettuce.

Total revenue for Wellspring Harvest Greenhouse in 2019 was $118,173, based on selling 83,370 heads, which equals 20,843 pounds. Local hospitals accounted for $12,870 and 3,432 lbs. of that, while local colleges and universities accounted for $17,349 in revenue, or 4,957 lbs. in sales

“Before the 2020 coronavirus impacted sales, the schools were on track to purchase between 18,000 and 20,000 pounds of produce [in 2020],” says Allen. And hospitals were tracking to purchase 6,550 lbs. for 2020.

In order to mitigate the sales dropoff owing to COVID-19, Allen says they are working on products to sell directly to consumers via a community sustainable agriculture model, incorporating a variety of new crops including strawberries, cucumbers and tomatoes. They continue to donate to the Food Bank of Western Massachusetts. And they’ve expanded their approach with local restaurants, Allen says. While local restaurants can currently only offer takeout, they are purchasing more lettuce from Wellspring in order to meet the need for carry-out salads. Perhaps surprisingly, because the supply chain from California has been interrupted, and there are concerns over the safety of products coming from elsewhere, the demand for Wellspring’s lettuce has increased, and their sales in the retail marketplace have actually spiked.

While Wellspring’s cooperative businesses serve local institutional and residential customers as well as those as far off as Boston or Worcester, the benefit of having a local anchor is that, for example, when there was a slump, they called an urgent meeting with Bay State, and parlayed the meeting into a deal that made them the hospital’s primary upholsterer. Now they’re working to position their new cooperative cleaning company into a contract with Bay State.

ALBUQUERQUE CITY GOVERNMENT BUYS LOCAL, AND NO ONE RUNS OUT OF TOILET PAPER

As auditor of the state of New Mexico, Tim Keller found that the majority of Albuquerque city purchases were transacted with businesses outside the state. When Keller ran for mayor of Albuquerque, he promised voters he would look at every procurement being made outside the city, and do everything he could to bring that government spending home, to create opportunities for local businesses.

“He’s kept that promise,” since becoming mayor in 2018, says Synthia Jaramillo, director of Albuquerque’s office of economic development. “He directed every single department in the city of Albuquerque — all 18 departments — to look at every purchase that was leaving the state of New Mexico,” and shift as many procurements as possible to local small businesses.

Since January of 2019, the city of Albuquerque has signed nine contracts with local small businesses, spending more than $16.6 million with them.

“We have awarded a lot of local companies contracts based on that administrative instruction, [companies] that would have never otherwise done business with the city,” says Jaramillo.

“In the midst of this crisis, when it comes to family and human services, homeless services, they’ve been instructed to use local companies [when purchasing] items,” says Jaramillo, including gloves and face masks.

Albuquerque even has its own local, minority, family-owned toilet paper manufacturer, Roses Southwest Papers, just a few blocks south of the city’s downtown. In response to the COVID-19 crisis, the firm has an online ordering system, so locals can place their toilet paper order, and Roses will deliver it right to their doors.

Another big part of the city’s buy local initiative is the development of an online “dashboard” that will give local businesses access to information about out-of-state spending. The local business can then reach out about switching the contract to them locally, says Jaramillo. In addition, the Economic Development Department is working to increase access to capital, so local small businesses are better positioned to scale up in order to meet city needs.

Jaramillo points to the success of making a city-wide shift in the procurement of office supplies, from a Florida-based office supplier to local, women-owned Diverse Office Supply, which employs “a diverse workforce of adults with special needs, focusing on sustainable, earth-friendly products” manufactured by other women- and minority-owned businesses. Thanks to the city contract, Diverse Office Supply has hired additional employees.

Debbie McLarty, CFO of Diverse Office Supply, stresses that in addition to a diverse group of special-needs adult employees, they also operate in a historically underutilized business zone (HUBZone) — a place in need of jobs.

“We started the city contract in November,” of 2019, says McLarty, and they immediately hired additional people. They were planning to hire more, but with the economic slowdown, haven’t done that, yet. “Because the City is one of our largest customers, we’ll fare better than other places,” she adds. “Had we not had this contract, I don’t know how we would fare.”

Still, the city contract keeps them going, including supplying needed office supplies to firefighters, police, forensics, and waste management. They also supply the city with binders made out of recycled cardboard and USDA-certified, bio-based pens, among other products. “The city is interested in things that are reusable. Green initiatives are our specialty,” says McLarty, “We’ve seen an uptick in demand for those types of things… and it does keep business going through the crisis.”

To Jaramillo, and to many in Albuquerque, it’s a no-brainer for the city to act as an anchor institution for local small businesses. “The majority of employees in New Mexico are employed by a small business,” says Jaramillo. “We don’t have big corporations like some places. Our economy is dependent upon small businesses. If they get a larger piece of the pie, they can recruit and retain employees who are New Mexico residents. The goal is to keep New Mexico and Albuquerque employed.”

Jaramillo admits it is still too early to see the economic boost this shift in spending has given to local businesses, although the city’s economist is tracking the data.

State and city leadership, she says, took action quickly. “I think we’re in a much better situation than other states that didn’t take action,” she says, noting that New Mexico, and Albuquerque specifically, were among the first to close businesses and issue stay-at-home orders.

Jaramillo says the city is also preparing for the aftermath of the COVID-19 crisis. “We are working on a development recovery plan. It will always be a buy local initiative — buy local will always be at the forefront.”

“It makes … that strategy to support and to really buy local so much more important today than it was when we rolled it out,” Jaramillo adds. “Working on city purchasing power to strengthen our economy and future is more important now than ever. The city of Albuquerque is an economic anchor institution in New Mexico, and we’ll encourage other institutions to do the same.”

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